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How To Access The Extra Cash AKA The Equity In Your Home

How To Access The Extra Cash AKA The Equity In Your Home

Exterior grey two-storey home in the fall

If you own your home but suddenly find yourself in need of cash, then you might want to consider accessing the equity in your house to use as your own personal loan. Your “equity” is the list price of your house minus any debts you currently owe on it. This could translate to hundreds of thousands of dollars that you could use to get through a crisis in your life or to fill another financial obligation that might have popped up unexpectedly.

But how is this done and what is the best way to do so?

There are numerous ways to access your home’s equity, and today I want to talk about three of them: getting a second mortgage, refinancing your existing mortgage, and the use of a line of credit.

Second Mortgages

Also known as a home equity loan, a second mortgage works much like a primary mortgage with at least one important distinction: the interest rate is usually higher than it is on a primary mortgage. As with a regular mortgage, you can obtain one with a fixed interest rate or a variable interest rate. Second mortgages will have a set term, and your payments will be split between paying off the original loan and paying off the interest.

Second mortgages are typically best for people who need a cash windfall in a short period of time. If you have sudden medical expenses or are hoping to consolidate your debts under one umbrella, then a second mortgage may be the right solution for you.

If your finances aren’t in need of immediate help, then you might consider…

Refinancing Your Home

Suppose you’ve still got your primary mortgage to pay off, but your financial situation has greatly improved since you originally bought your house. With a better credit score, you might be able to negotiate for a lower interest rate by refinancing your mortgage.

You can also get some cash out of this process by making the mortgage higher than the cost of your house, and taking out the difference as a loan. The lower interest rate can offset the cost of the new mortgage, while freeing up some cash to pay off other debts, putting you on stronger financial footing.

Both second mortgages and refinancing are good options if you need cash immediately, though qualifying for them can be a little tricky depending on your current situation. Alternatively, if you need more regular financing, then try getting a…

Home Equity Line of Credit (HELOC)

This option basically turns your house into a giant credit card. The lender will allow you to borrow money up to a certain limit based on the value of your home which usually comes with a credit card or checkbook to make it easier to access these funds on an on-going basis.

The benefit of this financial solution is that you only need to pay back what you draw from the loan, and even then, only when the term of the agreement ends. Until that time, you only have to pay the interest that you accumulate each month. The other benefit of HELOCs is that they have no closing costs, unlike the other two options associated with your mortgage.

When it comes to deciding how to access the equity in your home, it really depends on how urgent your financial situation is. Second mortgages and refinancing provide immediate financial relief, while a HELOC can provide a little extra cash to handle regular financial needs which when used as a safety net is a very affordable way to access cash only when you need it instead of in a lump sum.

Of course, all three of these plans come with substantial risks. If you are unable to pay back these loans on time, you could face foreclosure, which is why it’s important to make sure you are borrowing within your means. Better yet, give me a call at 705-315-0516 and I can help you figure out what your options are and together we can weigh the pros and cons to decide which loan type makes the most sense for you specifically. I’m always happy to help you gain a deeper understanding of your financial situation so that you can plan for the future while also meeting your financial goals.

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